Urban Institute Offers Solutions For Improving HECM Program

Urban Institute Offers Solutions For Improving HECM Program

The Urban Institute published an op-ed this week that proposes policy changes to the Home Equity Conversion Mortgage program to guarantee its long-term financial stability and to avoid the liquidity challenges that led to one lender’s bankruptcy.

The op-ed explains how Ginnie Mae requires issuers of HECM Mortgage-Backed Securities (HMBS) to buy out loans from an HMBS pool once they reach 98 percent of the maximum claim amount. Issuers assign eligible loans to the FHA, which takes over all financial responsibilities for the loans and reimburses the lender for the buyouts.

The authors of the op-ed – housing experts Jim Parrott and Laurie Goodman, and former Ginnie Mae President Ted Tozer – highlight that “the challenge lies not with the assignable loans but with the one in five loans that are not assignable. The FHA will not accept the assignment of any loan with delinquent taxes or insurance payments, forcing the servicer to sort through and resolve any outstanding borrower obligations first.”

It can take months and years to bring a loan current to the point where it’s assignable, while the costs for holding these loans on the issuer’s balance sheet keep adding up. In other words, lenders that have sizable portfolios of seasoned loans that are approaching 98 percent MCA face tremendous liquidity challenges, say the authors.

“The most effective step policymakers could take to address the problem is for the FHA to accept the assignment of all loans automatically upon buyout,” says the op-ed. “This would remove the prohibitive costs of holding nonassignable loans and reduce the costs of holding assignable ones by reducing the time it takes to be reimbursed.” In addition, allowing HECM servicers to continue servicing loans once they have been assigned “would prevent the costly and cumbersome transfer process and leave the loan in the hands of those better equipped to service them, reducing costs to the servicer and the FHA alike.”

These proposals align with policies that NRMLA has been advocating for. Read the full op-ed.

Published by

Darryl Hicks

Darryl Hicks is Vice President of Communications for the National Reverse Mortgage Lenders Association. In this capacity, Hicks writes for NRMLA's publications, manages the association's web sites and social media accounts, assists committees and the Board of Directors, and manages the Certified Reverse Mortgage Professional designation. Prior to joining NRMLA in 1999, Hicks spent three years in the Washington, D.C. bureau for National Mortgage News.